1.3 and 1.4

Question 1

What are the two primary macro factors that underlie the trend toward greater globalization?

Answer 1

The two primary macro factors driving globalization are

the decline in barriers to the free flow of goods, services, and capital since the end of World War II

and technological advancements in communication, information processing, and transportation.

Question 2

What is international trade, and how does it relate to globalization?

Answer 2

International trade involves firms exporting goods or services to consumers in other countries.

It relates to globalization by allowing firms to view the world, rather than a single country, as their market.

Question 3

What is foreign direct investment (FDI), and how does it contribute to globalization?

Answer 3

Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country.

FDI contributes to globalization by enabling firms to base production at the optimal location for that activity, serving the world market from that location.

Question 4

What were some barriers to international trade during the 1920s and 30s?

Answer 4

During the 1920s and 30s, barriers to international trade included high tariffs on imports of manufactured goods, erected by nations to protect domestic industries from foreign competition.

Question 5

How did countries respond to the negative consequences of high tariffs during the 1930s?

Answer 5

In response to the negative consequences, countries raised trade barriers against each other, leading to a cycle of retaliatory trade policies, ultimately depressing world demand and contributing to the Great Depression of the 1930s.

Question 6

What was the goal of the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO)?

Answer 6

The goal of GATT and the WTO was to remove barriers to the free flow of goods, services, and capital between nations.

Question 7

How has the volume of world trade changed since 1950?

Answer 7

The volume of world trade has consistently grown faster than the volume of world output since 1950.

By 2018, the volume of world trade was about $20 trillion.

Question 8

What role does foreign direct investment (FDI) play in the global economy?

Answer 8

FDI plays an increasing role in the global economy as firms increase their cross-border investments, contributing to global economic interdependence.

Question 9

How has the world trade volume been affected by events like the global financial crisis?

Answer 9

The volume of merchandised trade experienced a significant drop during the global financial crisis of 2008-2009 but rebounded in 2010.

Trade tensions between the United States and China can impact future trade growth.

Question 10

What does the growing integration of the world economy into a single marketplace mean for competition in various industries?

Answer 10

The growing integration of the world economy increases the intensity of competition in various manufacturing and service industries as firms find their home markets under attack from foreign competitors.

Question 11

Are further reductions in trade barriers guaranteed, and what factors might influence them?

Answer 11

Further reductions in trade barriers are not guaranteed, and demands for protectionism are still heard in various countries.

It’s unclear whether the political majority in the industrialized world favors further reductions in trade barriers.

Question 12

How have advances in communication, information processing, and transportation technologies contributed to globalization?

Answer 12

Advances in communication, information processing, and transportation technologies have contributed to globalization by

shrinking the globe,

enabling instant communication,

lowering transportation costs,

and facilitating the coordination of global production and operations.

Question 13

What significant innovation has played a crucial role in information processing and telecommunications?

Answer 13

The development of the microprocessor has played a crucial role in information processing and telecommunications, allowing for high-power, low-cost computing and enabling the encoding, transmission, and decoding of vast amounts of information.

Question 14

How has the cost of global communications been affected by technological advancements?

Answer 14

Technological advancements have led to a significant reduction in the cost of global communications. For instance, the cost of a three-minute phone call between New York and London fell from $244.65 to $3.32 (inflation-adjusted) between 1930 and 1990.

Question 15

What role has the Internet played in the global economy, and how has it contributed to globalization?

Answer 15

The Internet has become the information backbone of the global economy, enabling global communication, e-commerce, and coordination of globally dispersed production systems.

It has contributed to globalization by making it easier for buyers and sellers to find each other, expanding global business presence, and facilitating coordination.

Question 16

What is containerization, and how has it affected transportation and global trade?

Answer 16

Containerization is a transportation innovation that simplifies transshipment between different modes of transport. It significantly lowers the costs of shipping goods over long distances, making global trade more efficient.

Question 17

How has the development of commercial jet aircraft and superfreighters impacted global business operations?

Answer 17

The development of commercial jet aircraft has effectively shrunk the globe by reducing travel time between locations. This allows managers to oversee globally dispersed production systems efficiently.

Question 18

How have technological innovations facilitated the globalization of markets?

Answer 18

Technological innovations have facilitated the globalization of markets by enabling low-cost transportation of products worldwide, creating electronic global marketplaces, reducing cultural distances between countries, and contributing to the emergence of a global culture.

Question 19

Why is it important for firms to consider national differences in culture, consumer preferences, and business practices despite advances in technology and globalization?

Answer 19

Despite technological advancements and globalization, significant national differences in culture, consumer preferences, and business practices still exist. Firms that ignore these differences do so at their peril and must adapt to local contexts to succeed.

Question 20

What were the four stylized facts describing the demographics of the global economy in the 1960s?

Answer 20

In the 1960s, the four stylized facts describing the demographics of the global economy were:

U.S. dominance in the world economy and world trade.

U.S. dominance in world foreign direct investment.

Dominance of large, multinational U.S. firms on the international business scene.

Roughly half of the globe, the centrally planned economies of the communist world, was off-limits to Western international businesses.

Question 21

How has the relative share of world output and world exports by the United States changed since the 1960s?

Answer 21

Since the 1960s, the relative share of world output and world exports by the United States has declined.

In 1960, the U.S. accounted for 38.3 percent of world output, but by 2018, it accounted for 24.4 percent.

Similarly, its share of world exports decreased to 8.6 percent by 2018.

Question 22

What factors have contributed to the decline in the relative share of world output by developed nations like the United States?

Answer 22

Factors contributing to the decline in the relative share of world output by developed nations like the United States include faster economic growth in several other economies, particularly in Asia, as well as the overall growth of the world economy.

Emerging economies such as China, India, and Brazil have seen significant growth in their share of world output.

Question 23

How do forecasts predict the future economic landscape in terms of developed and developing nations?

Answer 23

Forecasts predict a rapid rise in the share of world output accounted for by developing nations such as China, India, Indonesia, Thailand, South Korea, Mexico, and Brazil, and a corresponding decline in the share held by rich industrialized countries.

Some estimates suggest that by 2020, China’s economy could surpass that of the United States, and India’s could approach that of Germany.

Developing nations may account for more than 60 percent of world economic activity by 2020, while wealthy nations may account for only about 38 percent.

Question 24

What are the implications of the changing economic geography for international businesses?

Answer 24

The changing economic geography suggests that many of tomorrow’s economic opportunities may be found in developing nations, and many of tomorrow’s most-capable competitors may also emerge from these regions.

International businesses need to be prepared for this shift and adapt their strategies accordingly.

Question 25

In the 1960s, which country’s firms accounted for the largest share of worldwide foreign direct investment flows?

Answer 25

In the 1960s, U.S. firms accounted for the largest share of worldwide foreign direct investment flows, with a dominant 66.3 percent.

Question 26

What were the motivations for foreign direct investment by non-U.S. firms in the 1970s and beyond?

Answer 26

The motivations for foreign direct investment by non-U.S. firms in the 1970s and beyond included the desire to disperse production activities to optimal locations and to build a direct presence in major foreign markets.

This often involved shifting labor-intensive manufacturing operations to developing nations with lower labor costs and investing in North America and Europe to hedge against currency fluctuations and potential trade barriers.

Question 27

Provide an example of a Japanese firm’s foreign direct investment strategy in response to currency and trade pressures.

Answer 27

Toyota, the Japanese automobile company, increased its investment in automobile production facilities in the United States and Great Britain during the late 1980s and early 1990s.

They did this in response to the belief that a strong Japanese yen would make Japanese automobile exports less competitive in foreign markets.

By producing locally, Toyota aimed to maintain competitiveness and address political pressures to restrict Japanese automobile exports.

Question 28

How has the pattern of foreign direct investment (FDI) changed over recent years, especially in terms of developed and developing nations?

Answer 28

The pattern of foreign direct investment has changed significantly in recent years. FDI globally fell in 2008 and 2009 but turned positive again in 2010.

In 2011, it reached an all-time high but has since declined, registering at -13 percent in 2018.

Notably, while FDI declined in developed nations, it grew by 2 percent in developing nations.

In 2018, developing economies accounted for a growing share of global FDI at 54 percent, up from 46 percent in 2017. China has been the largest recipient of FDI among developing nations, followed by Brazil, Mexico, and India.

Question 29

Define a multinational enterprise (MNE).

Answer 29

A multinational enterprise (MNE) is any business that has productive activities in two or more countries.

Question 30

What were the dominant national origins of multinational corporations in the 1960s?

Answer 30

In the 1960s, global business activity was dominated by large U.S. multinational corporations, with U.S. firms accounting for about two-thirds of foreign direct investment.

The United Kingdom was the second-largest source country, and Japan accounted for a smaller share at the time.

Question 31

How has the dominance of U.S. and British firms in the global marketplace changed over time?

Answer 31

The relative dominance of U.S. and British firms in the global marketplace has declined due to the globalization of the world economy and Japan’s rise as an economic power.

Question 32

What is the trend related to mini-multinationals in international business?

Answer 32

The trend in international business has been the growth of medium-sized and small multinationals, often referred to as mini-multinationals.

These are smaller businesses that are becoming increasingly involved in international trade and investment, expanding their reach beyond their home countries.

Question 33

What significant events took place between 1989 and 1991 in the communist world?

Answer 33

Between 1989 and 1991, a series of democratic revolutions occurred in the communist world.

Communist governments in Eastern Europe and eventually in the Soviet Union collapsed, leading to the disintegration of the Soviet Union into independent republics and the emergence of democratic movements.

Question 34

What opportunities and risks did the collapse of communism in Eastern Europe and the former Soviet Union create for international businesses?

Answer 34

The collapse of communism in Eastern Europe and the former Soviet Union created opportunities for international businesses, as these countries, which were previously closed to Western businesses, presented export and investment opportunities.

However, there were risks due to economic challenges and uncertainties regarding the long-term commitment to democracy and free market economics in these regions.

Question 35

What changes were observed in China’s economic and political landscape during this period?

Answer 35

Despite suppressing the pro-democracy movement in Tiananmen Square in 1989, China continued to move toward greater free market reforms.

If these reforms continued for two more decades, China could rapidly transition from a third-world country to an industrial superpower.

Question 36

How did China’s growth impact international business, and what challenges did it present to established international businesses?

Answer 36

China’s growth represented both opportunities and threats for international businesses. China became a massive, largely untapped market, attracting foreign direct investment.

However, Chinese firms proved to be capable competitors, potentially taking global market share from Western, Japanese, and Indian enterprises.

Question 37

What changes have occurred in Latin America regarding democracy, free market reforms, and their impact on international business?

Answer 37

In Latin America, there has been a shift towards democracy and free market reforms.

Previously, many countries in the region were ruled by dictators and had restrictive policies on foreign investment.

However, in the past two decades, debt and inflation have decreased, governments have privatized state-owned enterprises, and foreign investment has been welcomed.

Brazil, Mexico, and Chile have been leading the way in these reforms, making Latin America an attractive market for exports and foreign direct investment.

Question 38

What changes have occurred in the global economy over the past quarter-century?

Answer 38

Over the past quarter-century, barriers to the free flow of goods, services, and capital have been decreasing.

Cross-border trade and investment have been growing faster than global output, indicating increased integration of national economies into a single, interdependent global economic system.

Question 39

How has the adoption of liberal economic policies affected countries worldwide?

Answer 39

Many countries have adopted liberal economic policies, including

**privatization of state-owned businesses, deregulation,
market competition,
and the removal of trade and investment barriers. **

This has led to the success of market-oriented economies in countries like the Czech Republic, Turkey, Poland, Brazil, China, and South Africa, contributing to a more favorable environment for international business.

Question 40

(Add Clarifier)

Add Footnote

A
What are some potential challenges and uncertainties associated with globalization?

Answer 40

While globalization has brought benefits, it is not without risks.

Countries might retreat from liberal economic ideologies if their experiences do not meet expectations.

For example, Russia’s struggles with its shift to a market economy have led to hesitation.

Additionally, globalization can lead to financial contagion, as seen in the East Asian financial crisis of 1997-98 and the 2008-09 global recession.

Question 41

How can firms navigate the challenges and risks associated with globalization?

Answer 41

Firms can navigate the challenges and risks of globalization by implementing appropriate hedging strategies.

This helps them take advantage of globalization’s opportunities while mitigating the risks associated with economic downturns and financial crises.